Market Views: How will the Russian-Ukraine crisis affect ESG investments?

Some analysts believe the crisis has caused a rethink that could see a rise in investor interest in environmental, social, and governance (ESG) opportunities. We asked experts if this optimism is justified.
Market Views: How will the Russian-Ukraine crisis affect ESG investments?

The Ukraine crisis – like the Covid pandemic - is seen as a wake-up call for investors to take more positive action on sustainable investments in the environment, social, and governance (ESG) sector.

The renewable energy sector, for instance, is likely to get a boost from advocates of energy security spooked by the impact of the crisis on spiraling oil and gas prices.

Other areas such as food security, health security, and climate actions – for example, carbon storage and sequestration – have come under the spotlight as critical sectors for investment and development.

But there are other experts who have expressed concerns that ESG investments, especially the social and governance aspects, could be neglected during this period of intensified geopolitical uncertainty and pressure on fund managers to look for high returns.

They also look on with concern at emerging markets in anticipation of more stringent investment requirements on ESG values such as rule of law, good governance, and human rights, arising from Russia’s belligerence.

AsianInvestor reached out to experts for their opinions on how the Ukraine crisis has affected investor position on ESG investing in Asia and emerging markets.

The responses have been edited for clarity and brevity.

David Smith, Senior Investment Director, Asian Equities


David Smith

The tragic events of the Russian-Ukraine crisis have had, and will have, many impacts. One geopolitical impact has been an increasing focus on energy independence and security, particularly in Europe.

One outcome of that increased focus has been announcements suggesting an accelerated investment into renewable energy. On top of this, and whilst in the short term, we will see volatility in commodities markets.

As ESG funds would generally not be invested in oil, gas, and coal, higher energy prices would arguably serve to accelerate the transition to a low-carbon world, given the relative attraction of renewable energy in these circumstances. This would also include the accelerated adoption and penetration of electric vehicles. 

These developments would be structurally positive for renewables component manufacturers, including for example solar module and wind turbine manufacturers, and for companies involved in the electric vehicle supply chain, including for example batteries manufacturers.

Asia is well represented in both of these areas, and ESG funds would tend to invest in these industries. However, the current market volatility in oil, gas, and coal, and associated real world implications for populations in Asia, have also served to underscore the importance of a just and thoughtful transition.

Priscilla Lu, Head of Sustainable Investments Alternatives Asia


Priscilla Lu

The Russian-Ukraine crisis further accentuates the criticality of ESG focus, with emphasis on more intense investments and developments to support sustainability and self-sufficiency and efficiencies in energy consumption and environmental resource usage. 

With heightened awareness of the vulnerability in global interdependencies in supply chain, and the susceptibility to escalating inflation, the complexity of multivariable considerations in risk assessment continues to expand. 

Asia, as a significant global hub for manufacturing and supply chain, would play a significant role in shaping the stability of the global economy and could help sharpen the integration of ESG in all aspects of operations and investment considerations.

Both the lingering of the Covid-19 pandemic and the Russian-Ukraine crisis has brought into focus the urgency of “S” in ESG, where social community wellness, safety, and humanitarian aid are essential to ensuring global economic stability. This heightened awareness on “S” in ESG by institutions and corporations, as well as government organisations is welcoming, and hopefully can bring transformative changes for many Asian countries. 

Jia Xinting, ESG Investment Strategist (Apac)

State Street Global Advisors

Jia Xinting

At State Street Global Advisors, we believe there is no one-size-fits-all approach to ESG investing. While the Russia-Ukraine crisis may trigger investors to rethink investments in Asia and other emerging markets, this should be considered on a case-by-case basis.

For investors that are incorporating ESG factors to help improve long-term value creation, ESG needs to be considered in conjunction with a range of other factors.

Emerging markets now account for 12% of MSCI ACWI Index with 24 countries included in the index. Given the geopolitical nuances and idiosyncratic risks relevant to each country, ESG risks need to be analysed on a country-by-country basis, as well as at a sector and company level in order to form a view.

In addition to understanding ESG risks, ESG opportunities also need to be factored into the investment analysis, especially as the world is targeting transitioning towards a low carbon economy, and renewable energy investments in emerging markets play a vital role to make it happen.

In addition, active ownership is a powerful tool for long-term investors. Whether it is engaging with companies (not just companies in emerging markets) to drive further improvement on material ESG issues or voting against management; stewardship practices send a clear signal to investee companies and are driving forces for positive change.

Martin W. Hennecke, Head of Asia Investment Advisory and Communications

St. James’s Place

Martin Hennecke

“Against the backdrop of the recent rise in energy prices, as well as world food prices reaching a record high in February as per the FAO world food price index, questions have been raised about the unintended consequences of some well-meant ESG policies.

In particular, the (timing of the) defunding of relatively cleaner fossil fuels such as natural gas, or nuclear energy in some countries has impacted agricultural production - being energy-input sensitive (as natural gas is required for fertiliser production, farm machinery, transport etc.) – and affected the world’s poorest most.

What is important to understand is that inflationary pressures related to commodity price rises had already been building significantly before the Russia-Ukraine crisis as seen by producer prices - typically a leading inflation indicator - hovering at or above the 10% level in most countries.

In fact, the Eurozone has seen those figures seriously escalate, with Italian producer prices for January showing a staggering 41.8% yoy increase, making the country and region very vulnerable to a crisis in case of any additional bottlenecks or supply constraints, like we are seeing now.

In terms of ESG or responsible investing, I would suggest that it could potentially be most effective not to be categorically disinvesting from entire industries across many sectors with a categorical black-and-white screen, but to look deeper into whether there may be ethical business practices employed, positive changes happening or positive changes that could be encouraged to be happening.  

I would suggest that inflationary protection should be of increasing importance for any investor to manage the risk of purchasing power loss in an environment of significantly negative real interest rates.

Helene Li, Founder and Chief Executive


Helene Li

The Ukraine crisis reminds us that, like most investment matters, ESG is complicated and nuanced. There are “push and pull” factors that impact the momentum of ESG.

Russia is a large oil and gas exporter.  The short-term focus will be on energy security, and it is only natural people will default to legacy energy sources for that security.

However, this could be a short-term phenomenon.  There is an urgent need for net energy importers to accelerate their renewables program to become less reliant on traditional oil and gas sources.

More than 90% of global GDP are net energy importers, and more than 90% of global emissions are now covered by Net Zero pledges.  These factors combined will trigger an acceleration of investments into energy transition and renewables.

Another impacted area, particularly for emerging markets, will be food security.  Both Russia and Ukraine are among the top 5 exporters of wheat globally, and literally the “breadbasket” of the world. 

Many emerging markets countries in North Africa and Central Asia are heavily dependent on wheat supplies from both Ukraine and Russia - estimated to be as much as 30% of their wheat import needs.   There will be huge implications on the supply chain and food scarcity if the crisis is prolonged.  This will again bring a stronger focus on supply chain sustainability and Agri-Tech.

Maria Elena Drew, Director of Research, Responsible Investing

T. Rowe Price

Maria Elena Drew

The war in Ukraine can have far-reaching reverberations across the ESG landscape, one of which is that pressure to reduce dependence on Russian gas could expedite the transition to renewable energy.

Though it may take some years to play out, we could see this conflict contribute to an acceleration of the energy transition. The stability of energy systems is dependent on three criteria known as the “energy trilemma” – 1) security of supply, 2) cost, and 3) environmental impact.

While the recent jump in the cost of oil and gas might be short-lived, the security of supply scare won’t be, as Russia accounts for 12% of global oil production and 18% of global natural gas production. It is very difficult to change energy supply quickly without incurring higher costs and hurting the economy.

However, countries with the availability of more economical non-fossil fuel alternatives and more innovation in energy consumption patterns are better positioned to do so. Pushing energy transition harder and faster will mean investing in renewables and energy efficiency (smart appliances, green buildings, etc.), electrification, and other practices that can reduce reliance on oil and natural gas.

Evelyn Yeo, Head of Asia Investments

Pictet Wealth Management

Evelyn Yeo

In the near term, markets are preoccupied with risk-off sentiments from the Russian-Ukraine crisis and its many repercussions, including sustained higher energy and food prices due to supply disruption.

The crisis has also increased the urgency for energy diversity, with many European countries trying now to reduce reliance on oil and LNG from Russia.

From an investment perspective, ESG factors continue to have an impact on investment risk and reward. It helps to identify investment opportunities but also avoid material risks which can detract from performance. Companies pursuing sustainable business practices are more likely to thrive in the long-term as they are better at identifying, understanding, and managing longer-term challenges.

The increasing investor awareness and affinity towards ESG, coupled with regulatory scrutiny, is also likely to sustain the demand for ESG investments. That will, in turn, prompt companies, even in emerging markets, to adhere to basic international norms.

Various governments’ commitments to net zero, supporting infrastructure, and economic recovery look set to continue despite current sombre geopolitical sentiments. Weighing these near-term concerns and the longer-term momentum for ESG investments, we continue to be positive on our Green Marshall Plan theme.

Kunjal Gala, Lead Portfolio Manager, Emerging Markets

Federated Hermes

Kunjal Gala

From our perspective, we expect investments in cleantech and renewables to rise and hence be positive for ESG-linked investments globally. High energy prices will mean that renewables become more attractive and viable.

Hence, we expect major economies like the US, the EU, and China to expedite renewables investments to reduce fossil fuel dependence and protect households from rising inflationary pressures.

The investments will occur over the next several years. They will be positive for companies operating in grid electrification, renewable power producers, hydrogen fuel cell makers, and electric battery manufacturers.





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